Why Adobe's iPhone Fight Was a Flash in the Pan

Written by: Antoine Gara12/14/12 - 1:23 PM EST

Tickers in this article:
AAPL ADBE DELL HPQ MSFT

NEW YORK ( TheStreet) - Four years ago many would have said Adobe(ADBE) would be dead in the water if it's Flash Player wasn't a big part of blockbuster Apple(AAPL) iPhone launches and an upstart Google(GOOG) -Android ecosystem.

The Flash Player's days are now numbered on smartphones. Apple stopped carrying Flash in 2010 and in late 2011, the company said it would stop putting the player on mobile browsers and instead commit Flash software to PC browsing, mobile apps and its replacement, HTML5.

While Apple may have precipitated the death of the mobile Flash Player in the early innings of a smartphone boom, the move hasn't turned out to be the crucible for Adobe that many had predicted.

In fact, after reporting stronger-than-expected full-year earnings on Thursday, Adobe briefly traded at four year highs as the company shows signs that a multi-year software industry turnaround effort will yield strong earnings growth in coming years.

Adobe's non-iPhone revival is an important story in a technology sector riddled with the muddled turnaround efforts currently underway at the likes of Hewlett Packard (HPQ) , Dell(DELL) and even Microsoft(MSFT) , as they try to adapt to a shift from personal computing to mobile devices. It's also a good example of the quiet work some companies are doing to come out of the so-called Great Recession with new growth prospects that could drive top-line earnings in coming years.

In the tech sector, Adobe's earnings raise the prospect that mergers and acquisitions can drive turnaround efforts, in spite of highly publicized multi-billion dollar write-offs at Hewlett Packard and Microsoft. Meanwhile, Adobe also shows that a post-financial crisis focus on building the foundation of earnings growth over cost cuts may pay off for investors.

In late April, Jeffrey Ubben, the head of ValueAct Capital detailed to the TheStreet why the hedge fund was betting on an Adobe turnaround at the company.

Ubben's argument boiled down to two crucial points:

Deals like a $1.5 billion acquisition of online publishing analytics specialist Omniture in 2009, once deemed as expensive, may actually pay big dividends in coming years as Adobe transitions from a software developer to a more full service provider of technology needs in digital publishing and cloud services. Meanwhile, companies bold enough to use the financial crisis to cut acquisitions and increase spending may put them in a unique position for growth as an economic recovery takes hold.

Ubben highlighted the wisdom of the Omniture acquisition and called the business a "crown jewel" within Adobe's portfolio of digital publishing, software and cloud businesses, which includes a still strong Acrobat, Flash and Photoshop products. Although neither Omniture nor Macromedia were yet to return much above their cost of capital, according to Ubben's comments, he added, "I'm much more tolerant of low return strategic deals than I ever have been because no one is doing it."

Usage of this site is governed by TheStreet's Terms of Use available here.
Information collected on this site may be collected by TheStreet and SignOnSanDiego.
TheStreet's use of information collected on this site will be governed by TheStreet's
privacy policy available here. SignOnSanDiego's use of information collected on this
site will be governed by SignOnSanDiego's privacy policy available
here. If either
TheStreet's or SignOnSanDiego's privacy policy have provisions that are more restrictive
than the provisions of the other party's privacy policy, such more restrictive provisions
shall not apply to such other party.